tv Nightly Business Report PBS February 5, 2013 6:30pm-7:00pm PST
captioning sponsored by wpbt >> this is n.b.r. >> tom: good evening. i'm tom hudson. computer maker dell strikes a $24 billion deal to go private. what the buyout means for investors and the technology industry. >> susie: the u.s. government wants as much as $5 billion from standard and poors, officially accusing the credit ratings agency of fraud during the housing boom. >> tom: and earnings from a trio of consumer stocks finds us spending money on eating out and watching tv. >> susie: that and more tonight on "n.b.r." >> tom: a bold new chapter for computer maker dell was opened today. michael dell said today he's taking the company he founded almost 30 years ago private.
it's a $24.5 billion deal offering dell investors $13.65 per share. now, at one point, dell was the largest p.c. maker in the world, boasting market capitalization of more than $100 billion. now, it sits behind apple, hewlett packard and lenovo, valued a fifth of what it once was. ruben ramirez begins are coverage. >> reporter: michael dell admits he missed the consumer shift away from the p.c. to tablets and smartphones, but today's announcement his company is going private doesn't necessary address how dell is going to try to capture those markets. >> they want to continue to be a hardware player, but the question is, what's from here? where do you go? do you move just into software and services and try to get those higher margin sales? or do you try to continue to be both players? where do you go? >> reporter: the deal brings together more than a half dozen parties. the three main partners are: company founder michael dell, who will contribute a
combination of stock and cash-- he will continue as chairman and c.e.o.; private equity fund silver lake; and a $2 billion loan from microsoft. the i.o.u. means microsoft essentially is acting as a bank in the buy-out of a company upon which it relies on to sell its computer software. >> microsoft being the huge, cash-rich company that it is, has ample cash to deploy to help out, basically prop up an ailing ally here. and that's why we're seeing them involved in the deal in the first place. it's a symbolic sign of faith they're helping out a huge supplier. >> reporter: dell's personal computers still make up half of the company's business, and analysts say going private could make it easier for the company to restructure and make the critical shift to mobile without the glare of wall street investors. ruben ramirez, "n.b.r.," new york. >> susie: david garrity joins us now with more on dell. he heads up his own technology research firm, g.v.a. research. >> susie: so, david, the big question of the day,
today was what can michael dell do with his dell computer company as a private company he couldn't do as a public company? what's different, really? >> out of the public eye, dell can go through some fairly wrenching shifts in terms of the mix of business the company has, and be able to do so without necessarily having to essentially hold the hand of public sector equity investors. from that standpoint, we can look at a fairly strong deemphasis of the customer p.c. business. the company will most likely stay with the enterprise. but what the company does in terms of trying to pursue or stay relevant to this shift over to tablet p.c.s and smartphones remains a very open question. >> susie: these are uncertain times for any p.c.-maker. it is isn't a dell-only problem. you wonder can michael dell really fix things up at dell? >> certainly he has done well enough in the past. but investors have been
scratching their heads in the last five years, wondering what is the next great idea michael dell was going to have, rather than trying to put together a small-scale version, if you will, of the ibm software services and hardware model. >> susie: i want to ask you about hewlett-packard, because the statement that came out of hewlett-packard, let's pull it up. they said dell has a very tough road ahead. we believe dell's costumers will be eager to alternatives, and h.p. plans to take full advantage of that opportunity. you know what they say about people in glass houses. late today the board came out and said that hewlett-packard is considering breaking itself up. does hewlett-packard stand to gain something in all of this? >> certainly hewlett-packard is talking out of both sides of its mouth. in the event that hewlett-packard considers going forward with the breakup of the company is that one of the calls might be to silver lake
partners to essentially merge together the consumer p.c. businesses for both hewlett and dell. obviously, there are a number of steps that have to be gone through, but this is one possibility that investors might wish to consider going forward. >> susie: that would be a very interesting development on all of this. speaking of investors, they're trying to assess hugh are going to be winners in all of the players. let's pull up some of these stock charts as we're talking. dell, whether they should be investing and buying into dell. what about hewlett-packard. there is microsoft, one of the biggest financial backers in this deal. and then, of course, apple. how do you vote? where should you put your money? >> certainly in the backdrop, apple has got to be the clear winner from all of this. certainly the up-shot from all of these moves by management, both at dell and hewlett-packard, is that they're not clearly wedded to the p.c. business. if you're a customer looking for a product in that area for a company that is going to have solid financial support
and show a marked lead in terms of innovation, clearly it is going to be apple that is the winner coming out of all of this. if you look at microsoft, they wish to keep the p.c. business afloat, but we have to see how they make a transition on the software side. >> susie: i know you own apple, what about the other stocks? >> microsoft we own. dell and hewlett-packard, no. >> susie: thanks so much. david garrity of g.b.a. research. >> tom: dell wasn't the only deal news today. there's a multibillion-dollar deal brewing across the atlantic in the media business. liberty media said today it's in late-stage talks with john malone's virgin media about a possible merger. a deal would shake up britain's pay tv and internet market as virgin is the u.k.'s second largest pay-tv provider behind rubert murdoch's b-sky-b. and, as suzanne pratt reports, deal making in 2013 might just be getting started. >> reporter: think fast. can you name a mega deal that's kept wall street bankers busy in
the last few years? having trouble? no surprise. corporate marriages like these, common a decade ago, have been far less frequent since the financial crisis, but that may be changing. after a nice pickup in deal making at the end of 2012, activity is expected to accelerate this year. but, "deal reporter's" ed mullane says the deals will be smaller in size. >> in general, if g.d.p. growth begins to grow, you are going to see corporations across the board be much more aggressive in looking at deals. >> reporter: standard & poor's predicts $1 trillion in mergers will be announced this year. that's an 11% gain over last year and the first time we'd breach $1 trillion mark since the great recession. and, curiously, leverage buyouts often open the spigot for m&a activity. while the dell deal is likely to be the largest l.b.o. the market will get this year, private equity firms are expected to continue shopping.
>> we're going to be able to see a little bit more interest in the technology sector from private equity firms. we've already seen companies like a.m.d. shop themselves. i think there's a lot of room for tech processors to be taken off the board, even acquired by companies like h.p. or dell, who are going to try to build their laptops a little bit more from the inside. >> reporter: so, guess what's likely to fuel a pickup in deal making? the same thing that's pushing the stock market higher: cash plus confidence, a combination wall street hasn't seen for some time. suzanne pratt, "n.b.r.," new york. >> susie: still ahead, why the super bowl blackout means it's time for the cities that host professional sports teams to focus on the basics. >> tom: stocks were back in the green after suffering their biggest sell-off in months yesterday. one encouraging sign came from the service sector. the non-manufacturing index slipped in january from december, but not as much as feared, according to the institute of supply management. the employment index was at its highest level in almost seven years.
the dow gained 100, the nasdaq increased 40, the s&p was up almost 16. >> susie: the u.s. government made it official today. it filed a suit against standard and poors' credit agency for giving optimistic ratings on troubled securities that later failed and contributed to the financial crisis. the justice department could seek as much as $5 billion from s&p. it claims that's the amount of money federally insured financial institutions lost because of s&p's alleged wrongdoing. the government claims s&p
ratings services knowingly executed a "scheme to defraud investors." >> during this period, nearly every single mortgage-backed c.d.o. that was rated by s&p not only underperformed, but failed. put simply, this alleged conduct is egregious, and it goes to the very heart of the recent financial crisis. >> susie: more than a dozen state prosecutors are expected to join the federal suit. standard and poor's said the lawsuit holds no legal merit. >> tom: also in washington, there are just 24 days to go before automatic federal spending cuts take effect on march first. those cuts are called the sequester, and the worry is they could hit the u.s. economy hard. as darren gersh reports, president obama today asked congress to delay the cuts before the march 1 deadline. >> reporter: with $44 billion in spending cuts in defense and most other federal programs just weeks away, the president urged
congress to pass a mix of spending cuts and tax increases to ease the immediate hit. >> there is no reason that the jobs of thousands of americans who work in national security or education or clean energy, not to mention the growth of the entire economy, should be put in jeopardy just because folks in washington couldn't come together to eliminate a few special interest tax loopholes. >> reporter: republicans dismissed the calls for more tax increases, and many argue the threat of the automatic spending cuts known as the sequester are the only way to force democrats to accept more spending cuts. but their leverage may be limited. >> i think we will have the sequester for a short period of time, probably until the first civilian employee of the government is furloughed, which might take about a week. and then, that pain may be enough to cause the people on capitol hill and the president to come to some sort of rational deal. >> reporter: the short-term budget fight comes as the medium-term outlook for federal red ink is improving. the congressional budget office
figures the deficit will come in at $845 billion this year, the first deficit under $1 trillion since 2008. that's projected to fall to $430 billion in 2015; that's about 2.4% of g.d.p. but the public debt is projected to hit 77% of the economy by 2023. >> countries that find themselves with very high debt to g.d.p. and then encounter economic problems or international circumstances to which they need to respond really find themselves in very bad and dangerous circumstances. >> reporter: so the budget trade-off remains: balancing near-term economic pain against long-term gain. darren gersh, "n.b.r.," washington.
>> tom: a trio of companies relying on consumers had some mixed financial results late today but were greeted with mostly encouraging reactions with their stocks. we will have details from restaurants panera bread and chipotle mexican grill in a moment. but first, disney. while earnings per share were down from a year ago, they were better than estimates. tuna amobi covers disney for s&p capital i.q. take us through some of the details and really the mix of income within this big media conglomerate. more than half of it comes from media networks like abc and espn, and a quarter coming from the parks and resorts, and 10% from the studio and film business, 15% from consumer products. is this a good mix? >> well, yes, is the short
answer. i think this quarter in particular had a lot of noise around it. so i think the numbers are maxed within those numbers are a lot of one-time, non-recurring items, comparisons to the parks on the holiday ship for the new year. you've got the studio coming off of tough comparisons, and some new deals they signed. and which the costs are now just starting to fully get recognized. if you exclude all of those items, over all what i think we can take away is this first quarter results actually sets the tone for what we expect to be a very strong fiscal year, end of september. that is very evident from a lot of the forward-looking indicators which they gave out on the call today. >> tom: let's talk about some of that growth, what is going to fuel the growth. it is really the media business. more than half of its income comes from the media. the broadcast portion of
that, abc, was very good, 16%. but the cable channel was down, thanks mostly to espn. what is the outlook for that cable? can it rebound? >> well, i think espn is obviously the most valuable media asset out there. this quarter was depressed, as i said, by some issues related to sports programming costs. we were very encouraged by the q-2 numbers in terms of advertising. espn, q-2 to date, up 7% they gave out on the call. and affiliate revenues for espn should start to kick in this quarter, with a lot of some of the new deals that are just coming through. so espn remains a very viable asset, and the media networks in general. you talk about abc, that was a surprise for the quarter on the positive side. >> tom: certainly very bullish. you sound very bullish. d.i.s., the ticker on
disney. would you be a buyer at these levels in the mid-50s? >> yeah, sure. we have a strong buy on disney. we think the share should break into new all-time highs looking ahead to beyond this quarter. we talked to a lot of investors, and they're very excited about the work that the management team are doing. they're just starting to crush the surface, like the december 4 billion deal, and all of the up side that goes with that. >> tom: lucas film was the star wars franchise. do you own any disney shares yourself, tuna? >> no, i don't. >> tom: tuna amobi with us, from s&p capitol i.q. >> susie: some tasty earnings news after the market close today from two big restaurant chains-- chipotle and panera bread-- and shares of both companies rose sharply in after hours trading. earnings at chipotle increased almost 7% to $1.95 a share, in line with estimates. revenue rose 17%, but the company said it expects flat growth going forward, and it may have to raise menu prices to deal with rising food costs.
meanwhile, profits at panera surged 34% to $1.75 a share, a penny more than estimates. the company said it expects earnings per share to rise by as much as 19% this year, higher than previously targeted. nick setyan joins us now. he's restaurant analyst at wedbush securities. >> susie: so, nick, you told me you were disappointed when the numbers first came out on chichipotle, and after you listened in, you were encouraged. what is that? >> they had already announced the quarter. when i saw the unit growth, that was disappointing to me because lastiía they opened 180 units, and that signifies to me not only a slowing growth rate on the unigrowth side, but a slowing in terms of the absolute number of openings. that indicates a little bit of overpenetration. when i had conversations with some of the managers,
they tell me one of the biggest things for slowing transaction trends is that there is a store that opens up next door. >> susie: all right. they are trying -- they announced they are going to be trying some new menu options, vegetarian food. they're going to have a catering business. is this going to help them to stay ahead of the competition? they're also opening more stores. >> the caters business, certainly, could actually be a game changer. i think every 20 they sell per store per week is 6/10ths of an extra percentage in sales. that test in colorado has gone quite well. it seems like they're willing to roll it out nationwide in the next 10 months. >> susie: how do you feel about the stock? it was up sharply after hours. buy, sell, or hold? >> i think it is fairly valued now.
my ratings going into the quarter is with a neutral. >> susie: so talk about pen ra. penera. they had good numbers. what is your take on panera? >> panera is a name in the universe that has the best visibility going forward in terms of a comp growth and execution because of the quality of the management team. so when the quarter came out, the quarter to date comp numbers, and the sales growth number, was above expectations. there were a lot of worries going in because of the tough weather comparison last q-1, and that number could be below 4%, significantly below 4%. so that came in at 3.9%. and that's on top of a 12% january last year. i give them 4 to 5% for the quarter because the comparison actually gets easier going forward. that 4 to 5% is very doable and exciting for investors. >> susie: we just have a
few seconds left. do you see consumers still eating out, and going to the restaurants, whether it is panera or chipotle in this tight economy? >> for chipotle, i do. they are stealing costumers from guys like olive garden and red lobsters, where people find that the value equation is just not there anymore. >> susie: nick, do you sewown any stocks with chipotle are panera? >> i do not. >> susie: nick seytan, thanks a lot. >>
>> susie: president obama was not only focused on those budget talks we reported on, but also immigration. he met with a dozen c.e.o.s from top u.s. companies like yahoo and goldman sachs at the white house today. immigration reform is a key part of the president's strategy to revive the economy. and tom, most c.e.o.s favor it because getting highly skilled immigrants into the u.s. helps our competitiveness. they're all for it. >> tom: lots of concentration on immigration and ployment and wage growth, no doubt. let's go to tonight's "market focus." the broad market returned to a new five and a half year high during today's trading session. the buying started right from the opening bell with the s&p 500 climbing throughout the session, ending up 1%. volume picked up-- 701 million shares on the big board, almost 2.2 billion traded on the nasdaq. the biggest drag on the index yesterday provided the best sector gains today. technology up 1.4%.
health care and consumer staples were higher by more than 1% each. leading technology today was computer sciences. c.s.c. concentrates on technology services. it has sold off two businesses, focusing on its core operations. the market continues to like the transition and improving revenues. shares were up 9.2% to a new 52- week high. video game maker electronic arts is at an 11-month high. the company launched its newest game, "deep space 3." more than two million customers downloaded a demonstration version, indicating strong demand. online social game maker zynga was expected to lose money in the last quarter. late today, it reported it didn't, but it expects to lose money this quarter. zynga has had a tough time replicating the early success of games like "farmville" and "words with friends." after closing up 7% in the regular session, zynga shares were higher by as almost 6% more in after hours trading.
this comes after losing more than 70% in the past year. make-up company estee lauder led the consumer sector with sales growing across the globe. shares gained 6% to close at their highest price since october. the company raised its profit forecast for the year. a strong place for estee lauder is china, with quarterly sales up 28%. the same cannot be said for yum brands and its k.f.c. brand, and sales at those store open for at least a year in china were down 6% in the fourth quarter. k.f.c. was the target of a chinese government investigation into the use of antibiotics in chicken. it expects earnings per share to fall this year, sending shares down 2.9% to their lowest closing price since july. as we reported earlier in the program, the u.s. government officially filed civil fraud charges against s&p credit ratings services, and the shares of its parent company took another hit. mcgraw hill stock fell another 10.7%. the stock was above $58 per
share last friday; tonight, it's below $45, losing more than $3.5 billion of market value in two days. while its competitor in bond ratings, moody's, isn't part of the government suit, its shares also have fallen hard, dropping 8.8% today. it has shed more than $2 billion of market value this week. all five of the most actively traded exchange traded products were stronger today. the nasdaq 100 tracking fund put in the best performance, up 1.5%. and that's tonight's "market focus." >> susie: why this year's super bowl is causing the cities of professional sports teams to go back to basics. rick horrow explains in tonight's "beyond the scoreboard." >> super bowl 47 will be remembered not for what happened on the field, but for what happened off it. the game was suspended for 34 minutes when the power went out at the mercedes benz superdome. while the incident was
embarrassing for both the n.f.l. and new orleans, it did help make apparent a flaw in the superdome's electrical system, prompting mayor mitch landrieu to launch a full investigation into what happened. for all of the benefits that come from having a professional sports team, one of the most overlooked is the effect sports can have on identifying basic infrastructure needs within cities. for every new stadium or arena built, public officials meticulously analyze how the facilities will impact the local community. this currently is a big issue in atlanta, where road and sidewalk improvements could add $200 million to the cost of a new falcons stadium. while no one wants to experience a problem with 100 million people watching, the super bowl blackout reminds us of the importance of reliable basic infrastructure to all commerce. i'm rick horrow. >> susie: that's "nightly business report" for tuesday, february 5. have a great evening, everyone. and you, too, tom. >> tom: good night, susie. we'll see you online at www.nbr.com and back here tomorrow night.